Economic Inequality in China on the Decline

Analysts from Morgan Stanley say that China has achieved some success in reducing economic inequality, putting it on track to meet the World Bank’s high-income country threshold by 2025.

Chetan Ahya, an economist at Morgan Stanley, told The Financial Times that China succeeded in bolstering the rural to urban income ratio to 37% in 2016, from a low of 29.4% back in 2004.

On the basis of swifter growth in rural incomes, Morgan Stanley has now brought forward its forecast date for China achieving high-income nation status (defined by the World Bank as per-capita income of $13,700) by two years to 2025.

According to Ahya one of the keys to remedying economic inequality in China has been the gradual reform of the household registration or “hukou” system, which prevents millions of rural migrants from accessing key public services such as healthcare, housing and education when they move to the cities.

China recently set the target of granting 100 million rural migrants urban residency status by 2020, with cities whose populations are under 500,000 now completely open to new residents, and those with populations of up to 5 million compelled to accept applications for urban residency following five years of social security payments.

According to analysts a sharp rise in wages across China’s coastal manufacturing hubs has driven some industries towards poorer inland areas, helping to equalise regional incomes.

Official data from the National Bureau of Statistics also indicates that China’s Gini coefficient – a key measure of economic inequality within a country, has also been on the decline for almost the past decade.

While China’s Gini coefficient hit a peak of 49.1 in 2008, five years after NBS began to release public data on the inequality index, it has since fallen steadily to 46.5 in 2016.

China’s Gini coefficient nonetheless remains above the 40 point threshold that the World Bank deems the threshold for “severe income inequality,” with the only countries currently more economically unequal than China located in Latin America and sub-Saharan Africa.

According to analysts a declining Gini co-efficient and increasing economic equality can help to attract foreign investment flows, by reducing the risk of social unrest.

 

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